If you’re making software for businesses, there are four kinds of things you might be doing:

Outsourcing. “Tell me what solution you need and I’ll make it for your”. Example: (often offshore) companies that are selling development for an hourly rate.

Consulting. “Tell me what your problem is and we’ll figure out the solution together.”

Productized service / customizable product. “Here is the problem, here’s the solution, let’s apply it to your business”.

Products. “We know you are having this problem and here’s the exact solution you need”.

From my perspective, this is all about understanding the problem. The more you know about your customers, the more value you can provide and the more money you can charge.

If you’re doing outsourcing, you’re competing with thousands of other software providers. Your profit margins are probably not so high as you’re competing with thousands of other companies Continue reading

When does a startup become a business? After getting a paying customer. Without a paying customer you don’t actually have a business, no matter how much effort you’ve spent on the product. Without a paying customer, all the ideas are pretty much hypotheses.

That’s why, in my opinion, getting your first customers is the single most important things most startups can do. So why not start with that? What is the point of building a product if no one is going to pay for it?

How we pre-sold our product

This year I had a fun experience of pre-selling features that haven’t been built yet. By that time we already had an MVP of our product Renta, and a customer who was interested in using it. At the same time our software didn’t have a feature that was really important to him (our app wasn’t integrated with the CRM system he used). So we offered our client to pay for the development of this feature in exchange for using the software free for life plus premium support.

The client was really happy with the deal. He received the feature he needed by paying less than others would pay for using it over time.

Furthermore, the whole idea for Renta came from the service my co-founder was already getting paid for by his clients. His prototype did pretty much the same things our app is doing, it just wasn’t automated.

As a result of the pre-selling we received:

Money for the development.

An insight on what features are actually important in the product.

New feature that other clients could use which greatly improved our product.

How can you use pre-selling?

Sounds good, but where does it apply?

1. When you have an existing product and want to add new features and/or pivot to a similar product. If you’re not sure whether you should add a specific feature, just ask your clients to pay for its development, but on good terms for them. Your clients should be somehow rewarded for paying in advance, e.g. by a huge discount. But if no one agrees to pay for the development, there is a good chance no one actually wanted this feature badly enough.

2. When you don’t even have a product, just an idea. Having paying customers before even starting the development is a great way to start a business. We did it with our app Renta by selling the prototype to a client and actually making a profit from this deal. Plus, pre-sales can be a way to fund the development without venture capital. And if you do want the support of VCs, having paying customers before even having an MVP would be a huge validation of your project they would love to hear about.

Сonclusions

I don’t see pre-selling as a mere tactic. It can be a strategy behind your whole business. When applied right, pre-selling can serve for both validation and funding. Plus it’s fun and forces you to actually deliver the product your promised. Use this strategy right and never again you will make something no one wants!

This post is written for non-technical startup founders who are considering different options for developing their product.

There are two common options:

Define the features of your app and hire developers to do the job.

Find a technical co-founder and let him take care of the development.

I used to be an outsource software developer and manager. And from my experience working with different startup clients, first option rarely works. I’ve worked with technical clients and non-technical clients. The former tended to be much more successful in the end.

Usually hiring developers is a good option only for those who have a good understanding of the development process. Best case scenario is when this person is a developer himself. Even better if he writes some of the code because it forces to pay attention to seemingly little details.

Not having any of the decision makers know how to code can have a very negative influence on the company. Non-technical co-founders can often miss little details that can make all the difference when it’s time to expand the app. I’ve seen lots of times when non-technical founders made decisions that forced bad architecture.

Technical co-founder can serve as a translator between businesspeople and programmers. Those people generally speak different languages and have different priorities. Technical co-founder can help these two camps works as a whole and make architectural decisions with business in priorities in mind. Without him critical details may be lost in translation.

I like the example of Basecamp, where one of company’s founders David Hansson is not just a developer, but an active decision maker.

Such business incubators as Y-combinator spoted that teams with technical co-founders do better. Here’s a quote from their FAQ:

– I have a great idea for a startup, but I’m not technical. Will you still fund me? Can you help me find programmers to implement my idea?
We’ll consider funding you, but your chances are about ten times better if you find yourself a technical cofounder.

I’m not saying that technical co-founder is the only option there is. It just seems like having one is an important asset to the startup.

The idea of MVP is implementing the easiest possible solution for an idea. Let’s say, you want to build a mobile application that helps to learn the lexis of a foreign language: you type the words you want to learn into the mobile app and listen to them when you have the opportunity.

What is the usual approach? Create a specification, include every functionality the user might need, hire a development team and develop the product for like 6 months.

In reality this approach probably won’t work (only if you’re really lucky). Usually it takes more than one iteration to create a product that people really need. Polishing business ideas takes time.

If you apply the traditional approach, it will take you too much time and money to test your hypothesis. The solution is creating an MVP (minimum solution possible to test the idea) and then showing it to customers as quickly as possible.

The main reason so many startups fail is wrong assumptions. Too often founders think that their product is definitely going to succeed the way it is, without too much pivoting or changing their vision.
While usually it’s not possible, because of the nature of a startup itself. Steve Blank‘s definition for a startup is an “organization used to search for a repeatable and scalable business model”.Organization used to search for a business model. No more, no less.

Startup is just the way to test your hypothesis about the market, and then, if your hypothesis prove themselves, build a business on them.
So the short answer to the question “why so many startups fail?” is that the founders don’t quite understand the nature of what they are doing and taking unconfirmed hypothesis as failures.

So what is the strategy for a successful startup? Testing your hypothesis very quickly and with allocation of very little resources.

The main reason so many startups fail is wrong assumptions. Too often founders think that their product is definitely going to succeed the way it is, without too much pivoting or changing their vision.
While usually it’s not possible, because of the nature of a startup itself. Steve Blank‘s definition for a startup is an “organization used to search for a repeatable and scalable business model”.Organization used to search for a business model. No more, no less.

Startup is just the way to test your hypothesis about the market, and then, if your hypothesis prove themselves, build a business on them.
So the short answer to the question “why so many startups fail?” is that the founders don’t quite understand the nature of what they are doing and taking unconfirmed hypothesis as failures.

So what is the strategy for a successful startup? Testing your hypothesis very quickly and with allocation of very little resources.

We use too many smart terms nowadays. We give names and meaning to a lot of things in business, though actually it’s all very simple.

There is no B2B or B2C. Just Human to Human.

There are no clients, partners, managers or employees. Just people who are wearing these hats at this particular point of time. That’s it. There is no reason to make things look more formal and complicated than they are.

I find remembering this during daily business interaction to be very important. When talking to a client for instance, it’s important to see a person who came to solve his problems, not just his title from Linkedin.